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Monitoring Our Collar Trades with the BCI Collar Calculator

The is a trade with a . The active leg of the trade is the short call. When exit strategy opportunities present, we make the appropriate trade adjustments. These can be incorporated into our BCI Collar Calculator. This article will highlight a hypothetical trade where the short call is closed and then resold thereby hitting a double.

 

How is the structured?

  • Buy a stock in 100 share increments
  • Sell out-of-the-money (OTM) call options (strikes higher than current market value)
  • Buy options (strikes lower than current market value)
  • The net option position should result in an option credit that meets our stated initial time-value return goal range

 

Hypothetical trade with BCI

  • 8/23/2021: Buy BCI at $83.32
  • 8/23/2021: Sell the $84.00 (OTM) call at $3.16
  • 8/23/2021: Buy the $77.50 (OTM) put at $1.26
  • 9/1/2021: Buy-to-close the $84.00 call at $0.63 (20% guideline) as share price declines
  • 9/6/2021: Sell-to-open the $84.00 call at $1.50 (hitting a double) as share price recovers

 

BCI Collar Calculator results (left column to right column)

 

Collar Calculator Adjustments

Initial trade structuring (left column)

  • Initial return is 2.28% with a potential max return of 3.10% if share price moves up to or beyond the $84.00 strike
  • Maximum loss is 4.70%

Short call is closed on 9/1/2021: The 20% guideline threshold ($0.63) is reached (middle column)

  • The time-value return credit is reduced from 2.28% to 1.52%
  • The max gain is decreased from 3.10% to 2.34%
  • The max loss is increased from 4.70% to 5.46%

Short call is re-sold (hitting a double) on 9/6/2021 for $1.50 (right column)

  • The time-value return credit is increased from 1.52%% to 3.32%
  • The max gain is increased from 2.34% to 4.14%
  • The max loss is decreased from 5.46% to 3.66%

 

Discussion

The BCI Collar Calculator can be used to monitor our trade adjustments. Additional adjustments can be accomplished if we sell the although the active leg of the trade is the short call.

 

For more information on the collar strategy

Best Book

Best Video

BCI Collar Calculator

 

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Hey Alan,

I have great appreciation for all you do and sharing your wisdom with us! I have enjoyed much success trading options with your methods I read in your calls and put books as well as being a premium member.

Thanks again!

Sean

 

Upcoming events

1.Ramapo College of New Jersey | Anisfield School of Business: Private Webinar

The Basics of Stock Options

November 30, 2021

9:30 AM ET – 11:00 AM ET

 

2.Mad Hedge Summit: Free webinar

December 8th – 10th

Using Low-Risk to Enhance and Protect Portfolio Profits and Buy Stocks at a Discount

and Selling

Time, date, and registration link to follow

 

Alan speaking at a Money Show event

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Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

26 Responses to “Monitoring Our Collar Trades with the BCI Collar Calculator”

  1. Roni November 13, 2021 9:00 am #

    Alan,

    Your article, as always, is perfect. Thank you.

    My concern with this type of trade is finding a ticker or several tickers to fit this hypothetical situation when placing ten or more monthly trades.

    There are so many different aspects to consider and check before deciding on each trade at the beginning of the options cycle. It becomes more complicated if I should include a protective put to reduce the risk.

    Another problem with the collar trade is the additional complication with implementing exit strategies later in the cycle.

    There are undoubtedly many brighter minds who can dominate all these features, but my skills are limited, and I must therefore keep it as simple as possible. Actually, the more I learn, the more I find it challenging.

    It was more fun when I knew less – Roni.

    • Alan Ellman November 14, 2021 6:59 am #

      Roni,

      Like all strategies, the collar strategy has its pros and cons. The good news is the protection against catastrophic share price decline. The bad news is that our initial time-value returns are reduced approximately in half.

      Each investor must decide if the strategy meets their trading style and goals. Many of our members do use this strategy and so we provide the information and trading tools to assist in achieving maximum returns.

      Between the 3 reports we provide to our members, we should find enough candidates to populate our portfolios. As an example, I used ON Semiconductor (ON) taken from the stock report published on the member site last night (see screenshot below):

      Red arrow: Initial 1-month time-value return

      Blue arrow: Maximum 1-month time-value return

      Green arrow: Maximum 1-month loss

      You bring out a good point that, with the collar, there are 3 legs rather than the 2 legs in traditional covered call writing. However, the active management leg is the short call while the protective put is in place as an “insurance policy” Eventual sale of the put is certainly possible.

      CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.

      Alan

  2. JW November 13, 2021 9:11 am #

    Alan,

    I sold the 12/17 30 covered call on BGFV for 7.22 and now the stock is trading at 44.12 and the option is 15.90. What would you do?

    Thanks,
    JW

    • Alan Ellman November 14, 2021 7:15 am #

      JW,

      At this point in time, the maximum return based on initial trade structuring is looking good. Of course, there’s a long way to go until 12/17.

      It’s too early to consider rolling-out but we can use the “Unwind Now” tab of the Elite and Elite-Plus Calculators to determine the time-value cost-to-close and perhaps activate the “mid-contract unwind” exit strategy.

      The screenshot below shows a time-value cost-to-close of $178.00 per-contract or 5.93%. We ask ourselves if we can generate at least 1% more than 5.93% by contract expiration or in about 1 month. It would take another highly volatile stock to do so. Using the MCU strategy at this time may be appropriate for some aggressive investors but most conservative retail investors will take no action and continue to monitor this trade which has a favorable outlook at this point in time.

      CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.

      Alan

      • JW November 17, 2021 7:08 am #

        Hi Alan- you said ‘of course 12/17 is a long way away.’ And just like that the stock price is down (ex-dividend) to 29.60!

        This has been a great educational experience (with a positive return to boot.)

        JW

  3. Barry B November 13, 2021 11:12 pm #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 11/12/21.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    http://www.youtube.com/user/BlueCollarInvestor

    On the front page of the Weekly Stock Report, we now display the Top Performing ETFs, the Top SPDR Sector Funds, and the 4 single Inverse Index Funds. They are sorted using the 1-month performances from the Wednesday night ETF report and the prices from the weekend close.

    Please make sure that you review the new feature that we’ve added…Implied Volatility or IV. This is the At The Money (ATM) Implied Volatility for all of the stocks in the report.

    Best,

    Barry and The Blue Collar Investor Team
    [email protected]

  4. Yungchi November 14, 2021 2:59 pm #

    Hi Alan,
    Is possible can you give comparison of the hypothetical collar strategy to the bull credit put spread and the bull debit call spread with same strike prices of $84.00 and $77.50?

    Many thanks,
    yungchi

  5. Roni November 14, 2021 3:51 pm #

    Thanks, Alan,

    Ok, I agree; It is a cool trade and protects you against a crash.

    But the initial return doesn’t pay for the hard work involved, although, the potential max. return is great.

    Please correct me if I am wrong, but my calculations do not match the calculator’s results exactly. All my percentiles area tad higher??

    Roni

    • Alan Ellman November 15, 2021 6:14 am #

      Roni,

      The difference could be in “rounding” features of your device. For example, in the left column:

      [($3.16 – $1.26)/$83.32] = 2.28%

      Alan

      • Roni November 15, 2021 3:58 pm #

        Alan,

        I am referring to the example from your response, where you show a trade for ON Semiconductor (ON).

        My total investment, in this case, would be 5788 (5858 – 205 + 135)
        Therefore when I calculate the percentages of the initial return 70 = 1,21%, the max. 212 = 3.66, and max. loss 288 = 4.97%.

        The difference is tiny, but I wonder why it does not match?

        Roni

        • Alan Ellman November 15, 2021 5:20 pm #

          Roni,

          The small difference is due to the number entered into the denominator.

          In the BCI methodology, we do not use the net option credit as both initial profit and a factor to lower the cost-basis. We use it only as initial profit when setting up our trades. In the case of ON, the difference lies in the subtraction of $0.70 from the price of the stock.

          When a trade is closed, and we have a more complete perspective of our trade start-to-finish, we can deduct all credits from the stock price to get final realized returns.

          Alan

          • Roni November 16, 2021 4:10 pm
            #

            Alan,

            OK. That makes perfect sense.

            Thank you again and again.

            Roni

  6. Barry B November 14, 2021 3:51 pm #

    Hi Yungchi,

    Unfortunately, we can’t show examples of Bull Put Credit Spread or a Bull Call Debit Spread because the example that Alan used in the article is a hypothetical example and I am unable to get appropriate strikes and premium(s) to address your question.

    Best,

    Barry

  7. Ted November 15, 2021 8:34 pm #

    Hi Alan,

    When you refer to the typical range of 2 – 4% for ATM strikes, how would that apply to OTM strikes?

    Should the combined option premium and upside on the stock be no more than 4 to 6%?

    Just trying to have a better understanding of the percentage range.

    Best Regards,
    Ted

    • Alan Ellman November 16, 2021 6:08 am #

      Ted,

      The initial time-value return goal range is based on our strategy return goals and personal risk-tolerance. It does not include upside potential or downside protection.

      For me, it’s 2% – 4% per-month. I use a more conservative 1% – 2% in my mother’s portfolio. The higher the initial time-value returns, the greater the risk so each investor must make a personal decision regarding this range.

      If an OTM call strike is selected, the potential return will be greater than the initial time-value returns.

      Bottom line: It’s the initial time-value returns we focus in on when constructing our trades and then use the “moneyness” of the strike decisions based on overall market assessment, chart technicals and personal risk-tolerance.

      Alan

      • Ted November 16, 2021 8:36 am #

        Understood. Thanks Alan. Wishing you, your family and the BCI team a very Happy Thanksgiving.

  8. Roni November 16, 2021 4:29 pm #

    Barry,

    When I saw the Stock Screen last Sunday, I noticed that WDAY confirmed their ER for 11/18/21(expected originally for 11/25/21,) and therefore I bought a protective put, which reduced my potential gain from 4.5% to 3.5%. No big deal.

    I would have probably missed this important change, so, thank you.

    Roni

    • Barry B November 17, 2021 8:31 pm #

      Roni,

      Good move! I’m glad to see that you are getting more comfortable with protective puts and collars. They are great tools.

      Best,

      Barry

      • Roni November 18, 2021 10:41 am #

        Barry,

        Yes. Thank you.

        I am learning, but it is hard to teach new tricks to an old dog.

        Roni

        • Barry B November 18, 2021 1:24 pm #

          Roni,

          I respectfully disagree…the “old dog” appears to have mastered the new trick. That was a sound move with the protective put on WDAY. Depending on how WDAY’s ER is tonight, you may be able to sell the put and get some of the cost back…and improve your ROO.

          Best,

          Barry

          • Roni November 19, 2021 11:03 am
            #

            Barry,

            It was touch and go for a while in the after-hours, but now WDAY seems to be recovering. The ER was very positive, and this ticker will possibly be back bold on your future Stock Screens.

            Both my CC and CSP strikes are at 280.00 and expire today. The CSP is almost worthless (20.00 as I write), and I will leave it as protection for sudden reversal. My CC will probably be assigned, and my ROO at 950.00 would match the stock price by the end of this options cycle. 🙂

            Thanks for your supportive comments and help – Roni

  9. Alan Ellman November 17, 2021 5:02 pm #

    Premium members:

    This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly performance has also been incorporated into the report although not part of the screening process. Weekly option availability and implied volatility stats are also incorporated.

    The mid-week market tone is located on page 1 of the report.

    New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.

    For your convenience, here is the link to login to the premium site:

    https://www.thebluecollarinvestor.com/member/login.php

    NOT A PREMIUM MEMBER? Check out this link:

    https://www.thebluecollarinvestor.com/membership.shtml

    Alan and the BCI team

  10. Hoyt T November 19, 2021 1:38 pm #

    Way to go, Roni!

    Hoyt

    • Roni November 19, 2021 1:57 pm #

      Thank you, Hoyt.

      Roni

    • Barry B November 20, 2021 3:27 pm #

      Hi Hoyt,

      Haven’t seen you on the blog in a while. Good to “see” you again… I hope all is well.

      Best,

      Barry

      • Hoyt T November 22, 2021 8:01 am #

        Thanks, Barry.
        I have the aches and pains of an old “gunslinger”.:-) But other than that I am doing well. I hope you are too. How are those knees doing?
        We have been blessed to live in interesting times. Going from dial up modems with PCFN to the trading platforms of TDA, E*Trade, and now tastyworks is like having Christmas every day.
        Options trading can be so intellectually stimulating. However, innovating one may be, the mechanics must be consistent.
        Thank you, Alan, and all the BCI Team for all you do to enable individual investors to be the CEOs of Their Own Money.
        Good Luck,
        Hoyt

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